It is crucial to treat your trading account just like your bank account. The only significant difference is you have the benefits of increasing your account size with a controlled risk management rule. Controlling your risk is the most important part of trading, this is what differentiates the winners from the losers in the world of trading in the long run.
For instance, if you were to create a live account with a £1,000 account size. You will only be risking a maximum of 2% per trade, which means if the trade does not go your way only £20 is at risk. The great fact about trading the currency markets is that it actually enables you to secure various risk to reward trades. Applying a 2:1 risk to reward ratio on the same trade, you would’ve made £40 on the trade which is actually doubling your risk. When implemented continuously, your account size increases over time with the risk remaining at the 2% mark. The currency markets are highly liquid, due to it’s market capital size and does carry out frequent fluctuations.
There can be numerous trades that will present 3:1 or even 4:1 risk to reward set ups and above. This benefits us as we are minimising our risk and increasing our equity when implemented frequently. Risk to reward decisions are purely based on various price action trade entries.
Successful trading is not about winning every single trade, because it is highly unlikely that you will have a 100% success rate in terms of wins. One of the key elements to trading is ensuring you exponentially grow your account size over time and minimise risk whilst doing so. As mentioned, the maximum risk advised is 2%. This does not necessarily mean that you have to risk 2%, you may choose to risk 1% or perhaps 0.5%, it is based on what you are comfortable with risking.
Remember to always treat your trading account just like your personal bank account, minimise your risk as you exponentially grow your account over time. Most crucially, incorporate and follow the rules all the way.
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